The central bank also lowered its prediction for 2026 economic growth from 1.2 per cent last November to 0.9 per cent, and raised its forecast for unemployment from 5 per cent initially to 5.3 per cent. These expectations which make further rate cuts more likely.
Although above the 2-per cent target now, consumer price index (CPI)-based inflation is expected to fall back to around the target from April, owing to developments in energy prices, including from Budget 2025.
The risk from greater inflation persistence has continued to become less pronounced, while some risks to inflation from weaker demand and a loosening labour market remain, the central bank said in a release.
Monetary policy is being set to ensure that CPI inflation not only reaches 2 per cent, but remains sustainably at that level in the medium term, which involves balancing the risks around achieving this, it said.
“Borrowers must wait at least another month to see if mortgage costs come down, adding to the squeeze on consumers, who also face high food prices and rising unemployment,” Helen Dickinson, chief executive at the British Retail Consortium (BRC), said in a statement.
“While the Bank may expect inflation to ease in the coming months, this could be impacted by new government policies. The big one on the horizon is the Employment Rights Act. Several proposals within the new Act — such as on guaranteed hours — could create a substantial cost and administrative burden for retailers, while limiting job flexibility and employment opportunities,” she added.
“Holding the interest rate at 3.75 per cent was expected as the Bank grapples with the twin challenges of domestic cost pressures and an unpredictable global outlook,” David Bharier, head of research at the British Chambers of Commerce (BCC), said.
“Our data show that a majority of firms still expect to raise their prices, with labour costs cited as the top cost pressure. Meanwhile, tariff threats are already prompting contingency planning and risk pushing prices higher if retaliation follows.,” he noted.
“That leaves the Bank facing a difficult trade-off. Businesses tell us inflation risks are likely to persist in the short term, but a lower interest rate will be a key part of kickstarting the economy. However, today’s more optimistic MPC forecast, predicting inflation returning to target by April, will be welcomed by the firms we represent,” Bharier added.
Read more on Fibre2fashion.com
